Frank Franklin - Page 5

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Claimed Amount Amount
Expense on Return Allowed Disallowed
Outside services $ 7,300 $ 2,500 $4,800
Appraisal fees 1,500 1,100 400
Telephone 1,743 1,200 543
Postage 618 400 218
Rent 4,860 4,400 460
Car & truck expenses 5,772 3,960 1,812
Totals $21,793 $13,560 $8,233
No adjustments were made as to the reported gross income or the
other Schedule C expenses. The adjustments shown above were
disallowed for lack of substantiation.4
Section 162(a) allows a deduction for the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. An expense must be ordinary and
necessary within the meaning of section 162(a). Deputy v.
duPont, 308 U.S. 488, 495 (1940). A taxpayer is required to
maintain records to establish the amount of income and deductions
claimed on a return. Sec. 6001; sec. 1.6001-1(a), Income Tax
Regs.
4Petitioner did not participate in the audit process due
to his incarceration for a criminal infraction associated with
his loan brokerage business. Freddie T. Franklin, petitioner's
wife, presented substantiating information to respondent during
the audit process that resulted in the expenses allowed shown
above. Prior to issuance of the notice of deficiency, Mrs.
Franklin applied for and was administratively granted relief from
joint liability for the 1996 tax year, presumably under sec.
6015. None of the documentation surrounding Mrs. Franklin's
relief was offered into evidence, and petitioner raised no
objection in this case toward the granting of relief to his
spouse. Respondent did not issue a notice of deficiency to Mrs.
Franklin.